ICYMI: Here's Penn Virginia's Massive Red Flag

• Penn Virginia Corporation PVA reported Q3 earnings of -$0.60/share, short of consensus expectations.
• Oppenheimer believes that the company’s debt burden could become critical in coming quarters.
• Penn Virginia’s stock is down more than 22 percent in Tuesday’s trading session.

In a new report, Oppenheimer analyst Robert Du Boff updates his outlook for Penn Virginia following the company’s disappointing Q3 earnings report. Du Boff highlights one particular red flag that he identified in Penn Virginia’s 10-Q filing.

The numbers
Penn Virginia reported a Q3 loss of $0.60/share, more than consensus estimates of a $0.49/share loss. Q3 production of 21.0 mboed was slightly above the guidance midpoint of 20.7 mboed. However, the company’s mix of 62 percent oil, 21 percent gas and 17 percent NGLs was lighter on oil than Oppenheimer had predicted.
Price realizations on the quarter were $48.17/boe, down 13 percent from Q2.

The concern
Du Boff’s biggest concern when it comes to the future of Penn Virginia is the company’s troubling debt load. Even after $74 million in asset sales, the company still has a debt/EBITDAX ratio of 3.9x. Du Boff noticed a particularly troubling note in the 10-Q filing.

“Management believes PVA is on track to trip its revolver covenant (4.75x) during 1Q16 and noted in its 10-Q filing substantial doubts about its ability to continue as a going concern,” Du Boff explains.

Outlook
Penn Virginia is now forecasting $140-160 million in 2016 capex, down from prior guidance of $200-250 million. The company is guiding for Q4 2016 oil production to decline 5.0 percent from Q4 2015 levels.

Penn Virginia’s stock is down more than 22 percent in Tuesday’s trading session and now down 92 percent in the past year.

Oppenheimer maintains its Perform rating on the stock.

Disclosure: the author holds no position in the stocks mentioned.